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1
Nov 07, 2016
Gujarat Mineral Development Corporation Ltd
Others
11.8%
DIIs
11.9% Power
Revenue
29.7%
FIIs
2.3% Promoters Mining
74.0% Revenue
70.3%
2
Nov 07, 2016
Gujarat Mineral Development Corporation Ltd
May-16
Jul-15
Jul-16
Feb-15
Mar-15
Feb-16
Mar-16
Apr-15
Oct-15
Apr-16
Aug-15
Sep-15
Nov-15
Dec-15
Aug-16
Sep-16
Jan-15
Jun-15
Jan-16
Jun-16
raised Indias growth forecast to 7.6% from 7.4% for 2016 and
Manufacturing PMI Composite PMI 2017 while retained global growth forecast at 3.1% for 2016
Source: Bloomberg, Karvy Research
and 3.4% for 2017. While advanced economies appear to be
stabilizing, emerging economies have started showing signs of recovery. However, IMF has warned of economic stagnation on
the back of subdued global growth and Brexit (Britain exiting from European Union). However, optimists believe that the sharper
fall in the prices of most of commodities that occurred during the better parts of FY14-FY15 have got stabilized and any revival
in demand from China will be big booster to the sector.
India ranks at number three in production of coal while it accounts for over 7.5% of total world production. It is fourth largest coal
importer accounting for about 10% of global imports of coal. Coal is imported from Indonesia, South Africa, Australia and USA
and exported to Bangladesh, Nepal, UAE and others.
In spite of sufficient coal reserve, India is not been able to meet its demand from its own production. Moreover, the supply of high
quality coal in the country has been limited. Therefore, to bridge the gap of demand and supply, there is no option but to import
of coal, especially low-ash coal. The coal deposit is primarily concentrated in the Eastern and central parts of peninsular India
and also in parts of North Eastern regions like Sikkim, Assam and Arunachal Pradesh. Lignite deposits are in the Southern and
Western parts particularly in Tamil Nadu, Pondicherry, Gujarat, Rajasthan and Jammu & Kashmir. Since lignite is poor quality
substitute of coal, its price is mainly dictated by coal price and its availability.
Exhibit 5: Non-coking Coal of India (MT) Exhibit 6: Non-Coking Coal (US$ / MT)
140
Year Demand Despatch Import Export
110
2010-11 584.04 471.32 48.57 2.18
80
2011-12 649.36 483.58 71.05 1.92
50
May-14
Jul-13
Mar-10
Feb-13
Mar-15
Oct-09
Apr-12
Oct-14
Dec-08
Aug-10
Nov-11
Sep-12
Dec-13
Aug-15
Jan-11
Jun-11
Jan-16
Jun-16
Source: Annual Plan Ministry of Coal (MoC), Karvy Research Source: Bloomberg, Karvy Research
3
Nov 07, 2016
Gujarat Mineral Development Corporation Ltd
We have of late witnessed firming of ferrous and non-ferrous prices. There has been smart recovery in domestic steel prices with
decline in import of Chinese steel. We have also witnessed firming of non-ferrous metals including aluminum, copper, zinc etc.
This is largely due to government measures to check cheap Chinese imports and expectations of firming global metal prices.
14
-1
-6
Oct-15
Nov-15
Dec-15
Jan-15
Jun-15
Jan-16
Jun-16
May-15
May-16
Jul-15
Jul-16
Feb-15
Mar-15
Feb-16
Mar-16
Apr-15
Apr-16
Aug-15
Sep-15
Aug-16
IIP Growth (%) IIP Mfg Growth (%) IIP Electricity Growth (%) IIP Mining Growth (%)
Source: Bloomberg, Karvy Research
As per estimates from RBI, mining & quarrying contributes to 3.7% in total GDP which is likely to increase with any rebound
in sector performance. However, on account of excess production and subdued demand, some commodities including iron
ore had hit decade-low price levels. Moreover, slow down in China, the worlds largest metal consumer, has led to the markets
across the world including India getting flooded with cheap imports of steel, aluminum and other finished products thereby
hitting domestic mining industry adversely. However, of late, there have been signs of revival in global demand for commodities
which gets reflected in terms of rebound in manufacturing activities across leading economies resulting into rebound in metals
and mining prices. Governments initiatives like Make-in-India and likelihood of Indian economy growing over 7% in the years to
come wherein sectors like infrastructure and automobiles may receive renewed thrust, could lead greater demand for minerals
like coal, lignite and bauxite.
Decline in imported coal price has been a challenge for GMDC which seems to have been overcoming following recent
strengthening of imported coal prices. Further, imposition of GST will remove the VAT anomaly on lignite (Gujarat charges VAT
@ 22.5% as against most of the other states like Rajasthan which charges VAT @ 5-5.5%) and make GMDCs lignite much more
competitive, thereby helping improve realizations. VAT charge on coal stands at 4%. In the expected situation where all levies
are rationalized and normalized with the likely implementation of GST, GMDC will stand to benefit given much higher incidence
of taxation on account of Gujarat VAT rate.
Further, with the removal of restriction placed on GMDC to sell lignite to only end users, the company can sell lignite in the open
market and the management expects that volumes will increase by 25 per cent.
4
Nov 07, 2016
Gujarat Mineral Development Corporation Ltd
Bauxite:
Exhibit 8: Index of Mineral Production
130
130 GMDC operates 9 Bauxite deposits. Its cumulative bauxite
128
128 production was at 0.13 Mn mt from its 8 active mines
wherein contribution of Mevasa mines being highest of
126 127 0.12 Mn mt during FY16. GMDCs production capacity of
126
124 125 bauxite is likely to be stable in years to come. Current market
share of GMDC in total sales of bauxite in Gujarat is about
122 2.9%.
FY12 FY13 FY14 FY15 FY16
Mineral Production
Besides lignite and bauxite, the company also mines Fluorspar (used in industries like steel, aluminum, hydrochloric acid, foundry
flux and welding electrodes), Manganese (used for making iron-manganese and non-ferrous alloys), Silica Sand (used for water
purification and manufacturing of glass), Limestone (used as tiles and floors for large commercial complexes), Bentonite (used
as a binder in the preparation of pellets, in foundry and oil-well drilling) and Ball Clay (used in ceramic industries).
Power:
GMDC derives about 30 per cent of its revenue from its 250 MW thermal, 150.9 MW wind and 5MW solar power plants. A
500 MW thermal power plant in Bhavnagar through a joint venture with Bhavnagar Energy Corporation Ltd, has been put up
wherein GMDC owns promoter stake of 26%. First unit of plant of 250 MW has already been commenced in May 2016. The
company is having Power Purchase Agreements (PPAs) with Gujarat Urja Vikas Nigam Limited (GUVNL) for both thermal and
wind power and hence, realization is confirmed. With the Akrimota power plant stabilizing and low Plant Load Factor (PLF) of
around 65 per cent, there is enough scope of improvement. Besides, governments initiatives like Make in India and its thrust
on improving power sector having launched UDAY and Deen Dayal Yojana, augur well for the company. The policy decisions
like these are in consistence with expected growth of Indias economy at 7.4 per cent; wherein infrastructure sector will witness
more power and steel demand which will ultimately be resulting into more minerals demand like lignite, coal and bauxite.
GMDC power division consists of Thermal, Wind and Solar Power Plants. A total of 1746 Mn Units of power was produced in
FY16. This is an increment of 5% than previous financial year and the trend so set is likely to continue with pick up in infrastructure
activities.
45.0% 60%
1000
The power generation and Plant Load Factor (at 65%) - both
1427 40%
1359 have increased over the past two years. The improvements
500 985
20% are attributed mainly to the fast response time to breakdowns
by KEPCO (Korea Electric Power Corporation).
0 0%
FY14 FY15 FY16
Thermal Power Units (MW) PLF (Plant Load Factor)
5
Nov 07, 2016
Gujarat Mineral Development Corporation Ltd
Wind Power:
Exhibit 10: Wind Power units and PLF Utilization
330 24%
23.0%
322 23%
22.3%
300
The PLF of wind projects has increased to 21.1% in the
22%
FY16. FY17E is expected to see a capacity addition of
270 303
286 21% 50 MW by Inox. 2 wind turbine generators of 4MW capacity
21.1%
have already been commissioned on Mar 31, 2016.
240 20%
FY14 FY15 FY16
Wind Power Units (MW) PLF
Solar Power:
Exhibit 11: Solar Power units and PLF Utilization
10 25%
19.2%
18.8%
8 18.0% 20%
The generation of solar power has marginally come down
6 15%
in FY16 which has to be attributed to deterioration of solar
4 8.4 8.21 7.9 10% cells with time, which lower the efficiency and hence lower
2 5% generation.
0 0%
FY14 FY15 FY16
Solar Power Units (MW) PLF
Exploration Activities:
GMDC continuously undertakes exploration activities
Exhibit 12: Exploration Activities through tendering process within Gujarat for establishment
70 of minerals and reserves within the state of Gujarat. The
66 company has established 18 Mn tones of lignite reserves in
50 Mata-no-Madh area of Gujarat. GMDC adopts satellite
48 imagery and Geographic Information Systems (GIS)
technology for geological mapping and geological surveys.
30
Aggressive exploration activities and resultant finding of
29 27 25 lignite mines will help counter any adverse fall out of certain
10 exhaustion of the companys largest lignite mines, Panandhro.
FY12 FY13 FY14 FY15 FY16
Drilling in metres
All-in-all, the company is much better placed in qualitative and
quantitative terms; and implementation of GST is expected to
Source: Company, Karvy Research
provide big push to GMDCs mining business.
6
Nov 07, 2016
Gujarat Mineral Development Corporation Ltd
7
Nov 07, 2016
Gujarat Mineral Development Corporation Ltd
9000
-20% revenue growth on YoY basis. We expect revenue to grow CAGR at 12.5%
16747
14393
13230
15215
12027
4500
-23.0% during FY16-18E on the back of overall improvement in demand situation
0 -40% and rationalization of taxes with the implementation of GST.
FY13
FY14
FY15
FY16
FY17E
FY18E
6169
5242
3708
4213
3268
0 0%
FY18E on the back of rise in sales volume and prices.
FY13
FY14
FY15
FY16
FY17E
FY18E
4400 21.0%
30% PAT margin too, has softened over the period of FY11-16 but still at healthy
20.5%
20.1%
20% level of 20%. We expect PAT margin to improve to 21.0% by FY18E on the
2200 back of rise in prices and sales volume, following improvement in overall
6416
4391
5009
2716
3194
2412
10%
0 0%
demand scenario for commodities on one hand; and likely rationalization
of taxes post implementation of GST.
FY13
FY14
FY15
FY16
FY17E
FY18E
FY14
FY15
FY16
FY17E
FY18E
8
Nov 07, 2016
Gujarat Mineral Development Corporation Ltd
2.0
FY13 FY14 FY15 FY16 FY17E FY18E
Current Ratio (x)
9
Nov 07, 2016
Gujarat Mineral Development Corporation Ltd
20 13
15 11
10 9
5 7
0 5
Oct-14
Oct-15
Oct-16
Nov-14
Dec-14
Nov-15
Dec-15
Jun-14
Jan-15
Jun-15
Jan-16
Jun-16
May-14
May-15
May-16
Jul-14
Jul-15
Jul-16
Feb-15
Mar-15
Feb-16
Mar-16
Apr-14
Apr-15
Apr-16
Aug-14
Sep-14
Aug-15
Sep-15
Aug-16
Sep-16
Avg of EV/EBITDA SD1 SD2 -SD1 EV/EBITDA (RHS)
Source: BSE, Karvy Research
Oct-12
Oct-13
Oct-14
Oct-15
Oct-16
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Feb-12
Feb-13
Feb-14
Feb-15
Feb-16
Apr-11
Apr-12
Apr-13
Apr-14
Apr-15
Apr-16
Aug-11
Aug-12
Aug-13
Aug-14
Aug-15
Aug-16
Avg. PE 1 SD 2 SD -1 SD -2SD 1yr forward PE (RHS)
Source: BSE, Karvy Research
10
Nov 07, 2016
Gujarat Mineral Development Corporation Ltd
Peer Comparison
12 10.8
20 9.4
15.8 8.1 8.8
8
10.0
8.5
10
4
7.6
0 0
FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E
GMDC Neyveli NMDC Moil GMDC Neyveli NMDC Moil
50
17 15.4
40
30 12
20 7.2
7 8.6
10 7.7
12.1
7.1 8.6 10.3
0 2
FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E
GMDC Neyveli NMDC Moil GMDC Neyveli NMDC Moil
Source: Bloomberg, Karvy Research Source: Bloomberg, Karvy Research
Key Risks
yyPrice volatility of Coal.
yyDelay in land acquisitions and allowing the land under mining lease for non-mining purposes.
11
Nov 07, 2016
Gujarat Mineral Development Corporation Ltd
Financials
12
Nov 07, 2016
Gujarat Mineral Development Corporation Ltd
13
Nov 07, 2016
Gujarat Mineral Development Corporation Ltd
Disclaimer
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